A Crisis in Liability
Insurance?

In the past year or so, more and more builders around the
country are finding themselves faced with sharp increases in
their general liability and worker's comp insurance premiums.
Worse, some insurers are refusing to renew existing policies,
even to policyholders who have never filed a claim. "Both our
general liability and worker's comp rates went up by about 40%
this year," says Diane Schaffner, office manager of Lesmeister
Construction, a residential and commercial builder in San
Diego. "There are builders out there who have let their
coverage lapse because they just can't afford it."

Looking for numbers. Calls to builders around the
country turn up an abundance of similar accounts, but it's not
easy to find statistics that provide a clear picture of just
how severe the problem is nationally. The NAHB, for example,
has begun tracking the issue but has not yet compiled any
statistics. At least two surveys, however, seem to show that
the problem is very real.

In January of 2002, the Seattle-based Building Industry
Association of Washington surveyed 6,000 of its members about
problems they might be having obtaining or paying for
insurance. "The survey targeted GCs and subs with 5 to 15
employees," says BIAW spokesperson and legislative liaison
Tonia Neal. "Over half of the respondents reported significant
rate increases, and more than a third either had their coverage
cancelled or had to comply with new conditions to qualify for
renewal." And a recent national survey of insurance agents
performed by the Independent Insurance Agents and Brokers of
America found that liability insurance rates have increased by
about 30% since early summer of 2001.

Toxic torts and terrorism. Some of those rate increases
can be attributed to the skyrocketing cost of construction
defect claims, especially those relating to "toxic mold." Pete
Moraga, spokesperson for the Insurance Information Network of
California, notes that in Texas alone, the cost of settling
mold claims increased by over 500% between the first six months
of 2000 and the corresponding period a year later. "Today's
airtight homes are basically petri dishes for mold," he says.
"Most homeowners don't know that they need to ventilate their
homes to prevent problems."

Another possible cause is increased anxiety on the part of
insurers over the possibility of losses stemming from future
terrorist attacks. And because insurance is regulated by state
law, rates can vary dramatically from one state to the next for
reasons that have nothing to do with the national situation.
Builder's organizations in New York, for example, continue
working to roll back a century-old "scaffold law" that has had
a huge impact on insurance rates and availability within the
state (see "New York Builders Scramble for Liability
Insurance,"
Notebook,
9/01).

Premiums and investments. According to many experts,
the liability insurance crisis stems primarily from declines in
the stock market over the past year or two. Insurance companies
actually generate most of their profits not through the
premiums they charge, but by investing those premiums in the
financial markets. When investment returns are good -- in a
so-called soft market -- insurers actually pay out more in
claims than they collect in the form of premiums. According to
Madelyn Flannagan, vice president of education and research for
the Independent Insurance Agents and Brokers of America, until
recently most insurers were paying out about $1.08 for every
dollar collected in premiums. Declining investment income, on
the other hand, can signal the emergence of a "hard market," in
which insurers raise rates to make up the shortfall.

"Insurance has always been cyclical," Flannagan says. "A lot
of people in the business today have never seen a hard market
before, but they do happen. What we're seeing now is a
mid-course correction after a long period where companies had
been very open with their underwriting."

Finding affordable insurance in a hard market. If that
explanation is correct, builders can expect to be paying higher
insurance premiums for some time to come. In the meantime,
knowledgeable builders will look for savings elsewhere by
shopping more carefully for insurance. Madelyn Flannagan
suggests meeting with your insurance agent and reviewing your
existing policies to make sure you're not already paying for
more coverage than you need. "Make sure you're not still
insuring equipment you no longer own," she says. "Review your
policies and personnel and look for possible savings." In some
cases, she says, you may be able to save by accepting
additional conditions. For example, if you live in an area
where EIFS-related claims have been extensive but don't use
EIFS yourself, you may be able to obtain a lower
general-liability rate by waiving coverage for damage
associated with EIFS.

A task force appointed by the NAHB has begun looking at ways
for contractors to obtain affordably priced insurance coverage.
"We're trying to give our builder members a set of planning
tools," says task force member Stuart E. Price, founding
partner of Granor Price Homes in Horsham, Pa. "Builders need to
know how to shop for insurance, and insurers need to know how
to tell whether a builder is a good builder." The group hopes
to issue a preliminary package of information sometime this
fall.

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California Court Upholds
Construction Defects Arbitration

A recent ruling by a California appeals court may give the
state's builders a better chance of enforcing purchase and sale
contracts that require purchasers to submit to binding
arbitration over any construction-defect claims. Although such
contract provisions are common in California, state courts have
often allowed homeowners who have signed such agreements to sue
their builders anyway, holding that arbitration agreements
unfairly restrict the homeowner's ability to recover
damages.

In the case Basura vs. U.S. Homes, a group of 48
homeowners -- all of whom had signed arbitration agreements --
refused to arbitrate a dispute with the builder over foundation
cracks and other alleged defects in their single-family homes
in Palmdale, Calif. A Los Angeles County superior court judge
refused to enforce the arbitration agreement, but in June, the
California Court of Appeals overturned the lower-court ruling.
Even if an arbitration agreement is unenforceable under state
law, the appeals court concluded, it can be enforced under the
Federal Arbitration Act, passed by Congress about 80 years ago,
provided that the case involves interstate commerce.

In the Basura case, which involved a major home builder with
operations in most U.S. states, there was obviously a strong
interstate commerce effect. It's not yet clear whether a small
builder operating entirely within California could also seek
enforcement under the Federal Arbitration Act, but Joanna
Huchting, an attorney with Cox, Castle & Nicholson, which
represented U.S. Homes in the case, believes it would not be
difficult to make such a case. "When you look at manufacturers,
subs, and suppliers, every builder has an interstate
connection," she says.

The Federal Arbitration Act cannot be used to enforce
arbitration agreements that are designed to give the builder an
unfair advantage, according to Huchting. "If it's so one-sided
that it takes away the homeowner's right to be compensated,
that will prompt a different challenge," she says.

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Roof Tile Institute Releases
Updated Installation Guide

Clay and concrete tile roofs are very popular in many
western states, but until recently, roofers looking for a
single, authoritative handbook on best installation practices,
industry standards, and relevant code requirements were out of
luck. Instead, all of the various tile manufacturers put out
their own installation guides, for a total of more than 50
inconsistent guides. That confusing situation was recently
resolved with the release of a comprehensive new manual,
Concrete and Clay Roof Tile Installation Manual for Moderate
Climate Regions by the Roof Tile Institute (RTI) and the
Western States Roofing Contractors Association (WSRCA). First
issued in June of 2001, the new manual became effective in the
field in January of 2002; since then, almost all North American
tile manufacturers have replaced their previous manuals with
the RTI/WSRCA version.

Most of the information will be familiar to most professional
roofers, but the new manual does highlight four key
areas:

* A minimum of 26-gauge flashing is recommended in valleys,
pans, roof-to-wall flashings, and pipe flashing.

* Fasteners used for securing tile must meet ASTM A641 Class 1
or equal approval, which provides a minimum weight of zinc
coating per unit of uncoated nail surface.

* Weather-blocking material is required at hip, ridge, and
head wall openings to keep water on the surface of the field
tile. Other methods approved by local building officials are
also acceptable.

The complete 73-page manual is available from RTI's member
companies or can be ordered from the Western States Roofing
Contractors Association, 450 Peninsula Ave., Suite B, San
Mateo, CA 94401; 800/725-0333. The price is $50 for WSRCA
members, $75 for non-members.

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California Study Evaluates
Fire Resistance of Outdoor Decking

What happens to outdoor decking materials in the event of a
wildfire? Although none of the major building codes addresses
that question, it's an important one in many western states,
where fires are common and new development in wooded areas at
the edges of existing suburbs is increasing. To answer it,
researchers at the University of California Forest Products
Laboratory recently performed a series of controlled burn tests
of 15 commonly used decking materials, including five plastic
products, eight varieties of wood-plastic composite, and
redwood.

Sections of decking were exposed to two separate tests. The
first, known as an under-deck flame impingement test, involved
cycling an 80-kilowatt propane burner on and off beneath the
deck to simulate the effect of a ground fire. In the
burning-brand test, a standardized chunk of burning wood --
identical to the so-called A-brand used by the ASTM for
evaluating the fire resistance of roofing materials -- was
placed on the deck surface to simulate the effect of a burning
tree branch or other piece of forest debris. Among the study's
key findings:

* Deck-board shape seems to have a significant effect on fire
resistance. All of the materials with a "channeled" underside
(Eon, ChoiceDek, and TimberTech) showed early degradation in
the under-fire tests, apparently from the increased surface
area provided by the channels.

* Hollow sections proved much more vulnerable to flaming
debris than solid boards: All of the hollow-section boards
collapsed within the 40-minute duration of the burning-brand
test.

* Three of the six thermoplastic deckings -- Eon, Maxituf, and
EverNew -- collapsed quickly in the under-deck tests, with the
first two undergoing rapid and intense runaway combustion. Two
other plastic materials finished near the middle of the field,
however, and one -- a fiberglass-reinforced polyethylene from
Bedford Industries -- withstood the under-deck flame exposure
for longer than any other non-wood material.

* The widely accepted practice of gapping deck boards (the
boards in the test decks were spaced 3/16 inch
apart) may reduce rot problems by allowing water to drain, but
it probably leaves a deck more susceptible to fire. In
virtually every case, the researchers found, deck boards that
caught fire began burning where flames penetrated the gaps
between boards.

* Although the primary focus of the tests was the performance
of plastic-containing deck boards, the researchers also
evaluated test decks made from 8/4 Construction Heart redwood,
which is often used for outdoor decks in California. The
redwood decking proved surprisingly fire resistant, beating out
all other tested products in the under-deck flame test and
coming in second in the burning-brand test.

Full test results, including before and after photos of the
various test decks, are available at the University of
California Forest Products Laboratory website at
http://www.ucfpl.ucop.edu.

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BUSINESS TUNE-UP:
Spending Time or Wasting Time?

When business people talk about spending time, that's
literally what they're doing. A person who earns $50,000 a year
and wastes 30 minutes a day looking for lost files, hidden
supplies, and misplaced phone numbers costs himself $3,074.40 a
year. You can get more jobs, you can bring in more money, but
you can't create additional time. The closest you can come is
to make the best use of what time you have by cutting down on
waste. Here are a few suggestions on how to avoid time wasters
that I see all the time:

* Don't organize more than necessary to get the job done. In
other words, it's fine to have your paper clips in one
container, but don't start sorting them by color. Labeling file
folders is vital, but you don't have to spend time printing
labels on the computer.

* If your scheduling needs are minimal, you may find it faster
to keep a Day-Timer or similar schedule book than to use
software. I once had to wait about seven minutes for a client
to boot up his computer to access his software to tell me if he
had next Wednesday free. You can spend time researching
software to notify you when your payroll tax deposits are due,
or you can stick a wall calendar over your desk and draw a big
red circle around the fifth of every month. Figure out what
works best for you now and implement it now; you can always get
something cooler next year.

* Use e-mail wisely. Don't respond to every message; some
don't need a reply. Keep responses short and focused.
Discourage people from sending you "amusing" jokes and
cartoons. Check e-mail only at designated times: perhaps first
thing in the morning, at lunch, and at the end of the day. Just
be sure to allow time to reply within normal office
hours.

* Keep only current files in your immediate workspace. Weed
frequently to cut down on time spent pawing through irrelevant
files or risking paper cuts digging into overstuffed file
drawers. File last year's stuff in a secondary filing space and
relegate older info to labeled file storage boxes.

* Touch paper a maximum of twice: once when you receive it and
relegate it to an In box; once when you process and file it.
And for heaven's sake, file right away. Once any necessary
information has been entered into the computer, get the paper
off your desk and out of sight.

* Have two In boxes: one for time-dependent items (important
correspondence, bills, imminent seminars of interest) and the
other for non-time-dependent items (bank statements, articles
of interest, ads for professional development materials, offers
you may want to explore). Yes, you'll have two piles instead of
one, but you won't have to waste time digging through one big
pile to see if you missed that last credit card payment. Empty
your time-dependent box every day.

* Mark everything you've entered into the computer
accordingly, so you don't have to wonder whether you've done it
after you're interrupted for the seventh time by the phone.
Keep it simple: Buy a stamp that says "Entered" or just grab an
eye-catching Hi-Liter and make a check mark in the upper right
corner (place of highest visibility). Don't use opaque markers
that could hide important information or bleed through the
paper.

* Keep nonproductive conversation to a minimum. Hang up on
telemarketers, don't see salespeople without an appointment,
and practice your exit lines with high-maintenance clients who
believe they need a full hour of phone time with you to bounce
around ideas about vanity door pulls.

If you're now working a 60-hour week and longing for a 40-hour
week, you may find that you can reclaim 30 or 40 minutes a day
just by tightening things up around the office. Hey, 40 minutes
a day would drop you down to 56 hours and 40 minutes. It's a
start.

Melanie Hodgdon is a business systems consultant for
builders in Bristol, Maine.

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Offcuts

Garage-door orientation in Farmers Grove, Texas, must be
determined statistically, according to a recent city
council ruling. In September of 2001, the Dallas suburb enacted
an ordinance "to prohibit garage doors on the front half of the
lot [from] directly facing the street where 75% or more of the
existing residences on a block do not already have garage doors
on the front half of the lot directly facing the street." A
group of citizens had complained that neighborhood character
could suffer when rear-facing garage doors were remodeled to
face the street.

Arsenic in pressure-treated lumber is suspected in an
arsenic-poisoning case, according to the New York Times.
When a Mississippi homeowner became seriously ill with arsenic
poisoning, her husband was investigated for attempted murder.
The case fell apart when the husband proved to have even higher
arsenic levels than his wife. It was then found that the couple
had been working indoors with CCA-treated lumber at a vacation
home and had burned some of the wood scraps. An FBI
spokesperson noted that the attempted murder case had lacked a
logical motive from the beginning. "She's the breadwinner," he
said. "There's no big insurance policy. There's no
girlfriend."

An Arizona company is manufacturing green insulation from
blue jeans. Bonded Logic, Inc., in Chandler, Ariz.,
processes post-industrial blue jean scrap material into an
environmentally friendly batt insulation. The ASTM-approved
UltraTouch insulation is treated with borates to resist fire
and insects. It's available in both 31/2- and
51/2-inch batts.

Home Depot has barred the U.S. government from doing
business with its 1,400 stores, according to a story in the
St. Louis Post-Dispatch. Home Depot's corporate management has
reportedly instructed store managers not to take government
credit cards, purchase orders, or even make cash sales to the
federal government. Susan McIver, director of the Services
Acquisition Center of the federal government's General Services
Administration, was puzzled by the new policy. "Home Depot has
not contacted us, so I've no idea what their problem is," she
said.

One of the nation's largest production builders has begun
using dry framing lumber in all of its houses. According to
Random Lengths, Centex homes stopped using green framing in
April as a result of customer concerns about the mold that
often appears on the surface of green fir lumber during warm
weather. The newsletter quoted an Oregon lumber trader who
observed that in April, standard and better 2x4 dry fir sold at
a $15 premium over green fir. By mid-June, the source noted,
the premium for dry fir had increased to $60.